With the fall semester starting soon, it's time to finalize how you'll pay for college. After scholarships and grants, the average cost for one semester is about $7,000 at public colleges and about $13,000 at private colleges. Most families uses a mix of savings, income and loans to cover the remaining cost. Borrowing money should be the last resort. If you're just short of being able to cover the total cost upfront, find out if the college offers a way you can pay in installments. But many families find they still need to borrow to fill in the gap. About 42 percent of them borrowed some money to pay for school last year, according to a survey published by lender Sallie Mae. "There's still time to take out a loan, but you want to do it sooner rather than later," said Kalman Chany, the author of Paying for College Without Going Broke, an annually updated book from The Princeton Review. If you've suddenly realized the bill is bigger than expected, there are three borrowing options: federal loans that students borrow, federal loans that parents borrow, and loans from a private lender.
Use Federal Loans For Students First
The federal Direct Loans for students come with low interest rates, flexible repayment options, and students are automatically eligible regardless of income or credit history. The interest rate is fixed and the same for every student. It's 4.45 percent for the 2017-2018 school year. For some low-income students, there's another benefit. Their Direct Loans won't start accruing interest until six months after graduation. For everyone else, the interest starts accruing immediately. But there's a limit on how much students can borrow. Direct Loans are capped at $5,500 during your first year of college, $6,550 during your second year, and $7,500 during your remaining years. (These loans also have a 1.1 percent origination fee. So you'll receive closer to $5,440 during your first year.) To apply for the loan, first fill out the Free Application for Federal Student Aid (FAFSA), if you haven't already. Then log in to StudentLoans.gov to accept the loan.
Federal Parent PLUS Loans
For some, the capped federal loans for students may not be enough to cover the remaining cost of college. Parents may have to step in to borrow the money themselves from the federal program or a private lender. The federal PLUS Loan program for parents should offer enough money to cover the remaining cost of attendance (including things like books and transportation) after using other financial aid. But parents must pass a credit check to receive the federal PLUS Loan. They must not have an "adverse credit history," which means they cannot be delinquent on other debts. In most cases you can apply for the loan at StudentLoans.gov, but some colleges have a different process, Chany said. The interest rate is fixed and the same for each borrower. This year it's seven percent. Parents are expected to start repaying the PLUS Loans immediately unless they request a deferment while their child is still in school. They come with several repayment options. If a parent fails the credit check, there is some good news. The student will automatically be able to borrow an additional $4,000 in Direct Loans. But some parents with good credit might be able to find a lower interest rate from a private lender.